Life Insurance for a Stay at Home Mom

image by Linda Cronin

Since I’ve been tackling a lot of stressful financial situations in the lives of those I’ve counseled lately and in light of our upcoming baby #2, I thought I’d spend a little time to discuss the question of whether or not you should have life insurance on a stay at home mom. Let’s get a few basics out of the way first:

Strictly as insurance, I do not believe in “permanent” insurance (whole life, universal life, etc.). It is much more expensive than it needs to be as far as insurance goes and since we’re talking about INSURANCE (and not investments), let’s just stick to the idea of looking at term life insurance for a fair comparison in my examples and avoid all that debate for today.

I’m a HUGE advocate of having life insurance on SOME people. Do I need life insurance for Annie (who is not even 3 and brings in no income to our household) – NO. If she dies, we’d be emotionally crushed, but about the only impact to our finances would be the cost of her funeral and burial. A good way to be able to cover that is by getting a rider on an existing policy. It is cheap (per month) and $10,000 or so of coverage should be plenty.

Do I need life insurance on me? ABSOLUTELY – I’m the breadwinner in our family and if I die, Stacy needs income to be able to buy a Rolls Royce (strike) continue a reasonable lifestyle even if I’m gone. So that gets at the purpose of life insurance: replace needed income lost if someone in the family dies. That means if you don’t bring in any income to the family, you likely have no need for life insurance (beyond something to cover your burial). And that gets at today’s question – do families need to get life insurance on a stay at home mom?

Let’s consider what happens if a stay at home mom dies. Who takes care of the kids? Who takes care of the house? Who does the laundry, cooking, cleaning, etc.? Who takes care of the husband!? I know I may sound pretty traditional when I say all this, but Stacy brings REAL value into our home when she does any/all of the things I listed above. If she weren’t around, I’d have to pay someone to care for Annie (or depend on family). I’d have to spend more time handling household chores or pay someone to help. I’d have to take on all the household responsibilities now split between the two of us and somehow manage to keep working full-time. As anyone who is a single parent can attest, this would be HARD. I think Mary Poppins would be about the only person I could hire to pull off what Stacy does and I’m sure she wouldn’t be cheap.

When it comes to stay at home moms, I break my cardinal rule about life insurance. I believe there SHOULD be life insurance on stay at home moms because while they may not necessarily bring income into the household, if they disappear there is a lot of added expense that needs to be covered. So for that reason, I strongly suggest husbands show care to their wives and be sure there is insurance on her.

How much? The general rule for life insurance on someone bringing in income is to have 10 times the income you’d need to replace if they were to die. My rule for insurance on stay at home moms is to consider how much it would cost to take care of all the things you’d have to do if she were to pass and get 10 times that amount. For Stacy, we estimated we’d need about $25,000 per year for GOOD care for Annie (and the Bean when he/she arrives) and other stuff that might be needed. So we have a $250,000 policy on her.

How much does it cost? For us, it is less than $12 per month. Considering the comfort it brings us both, it is a GREAT investment. Of course the actual cost for your situation would depend on your coverage amount, your age, your health, etc., etc., etc. I bet a quote would surprise you though. It is CHEAP comfort. So what do you think? Do you have life insurance on every member of the family? If so, why? Do you have zero life insurance? Why not?

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Comments

We don’t have life insurance for me, but we’ve been thinking about it. There be a lot of added expenses if my husband had to pay somebody he could trust to take care of the girls. We don’t take that kind of thing lightly and paying for very high quality care would be important. Thanks for the food for thought, Barry! 🙂

Hi guys – so happy for your “debt-freeness”!!! I would like your opinion on getting the $10,000 life insurance on my kids. I have 3, and the premium is a little over $12/month. I’m a SAHM and we have a policy on both me and my husband. The one on the kids is basically for covering funeral expenses if the need should ever arise, and I know it’s a gamble… Whatcha think?

If you have a policy on yourself, you can usually add a child rider for VERY little. This isn’t a bad idea if you don’t have a good emergency fund saved up. If you have a good amount of savings ($10k or so) I don’t think you need to save for your child’s funeral.

I used to listen to Dave Ramsey when I lived in a city that aired his broadcast and I traveled a lot. I’m familiar with his (and your) idea of taking out 10x the annual income of the insured person. However, I am very curious where you can find a relatively safe investment with a 10% interest rate. Perhaps it’s because I’m Canadian, but you wouldn’t find anything like that where I’m from. Can you elaborate?

Hey Kristy,
This is a GREAT question. I addressed this topic several months ago in an “Ask Barry” column. I hope it will give you the guidance you’re looking for: http://www.stacymakescents.com/ask-barry-june-26-2011. It is the third question/answer down.

This is a relatively fair statement. You might have access to the money but only when investments are doing well. Usually long-term investments are the only type that can have this sort of over-time return. In other words, they may make 30% one year, lose 25% the next, etc. The LONG term return is where you’ll make the money, but you have to be willing to tie the money up for several years (at least 5 is a decent rule of thumb).

I am a SAHM and I have 500,000 in coverage. We have four children and the cost of replacing me would be high. Not quite THAT high, but I determined I would want an in-home nanny for the baby, a weekly housekeeper, a nicer vehicle for the family to ride in, etc. That would allow my husband to make whatever necessary purchases right away, (van, etc), completely finish funding all four boys’ college educations, hire Mary Poppins (I had TOTALLY had the same thought… he’s going to need Mary Poppins, complete with British accent), and then still draw off the interest for the rest of his life.
Thanks for writing about such an under-discussed topic! (And we’re Debt Free, too!! Big Dave Ramsey Fans!! I can’t say I’m just a little jealous that you got to do you DF scream in person and got to MEET HIM! I’m a LOT jealous! We called from Germany and got on-air… it was too far a commute to travel overseas.)

I actually used to work with Primerica, and one of the big factors that people can consider is the ability to “self-insure” once their net worth reaches a certain point. It’s much like the need for a small rider for each child–once enough is saved to cover material expenses in an emergency fund, then the other factor becomes a mourning period and if the emergency fund would adequately cover all those expenses without being completely depleted. Similarly, as a couple grows together, ideally, they are saving for retirement via 401k/IRA and possibly other investment vehicles, and at some point, it makes more sense to cash out some of the investments (in the event of a death) than it does to carry life insurance, particularly as we age and premiums begin to rise.
Again, if the goal is to pay insurance until one’s personal savings and investments can substitute, then “permanent” insurance becomes completely unnecessary. When I was in training classes at Primerica, as they continued to teach us the different kinds of whole, universal, variable etc life insurances, I started to wonder why they were even legal! But honestly, if you want investments, it really is best to buy term for the amount that you need, and invest the difference. In this way, the invested money AND the insurance money goes to loved ones in the event of your passing; with the other forms, it’s generally one or the other, depending upon how paid up the policy is. Let’s not discuss the dangers of borrowing against a life insurance policy, which you cannot do with term!
Another thing to consider is what’s called an increasing benefit rider, or IBR, in the industry lingo. This will automatically “up” your coverage (and your premium, but at a discount) every year by a certain percentage. This is useful to continue to adjust with inflation so that the same policy that you got 10 years ago remains relevant to your family’s needs and the rising costs of living and adjustments made to lifestyle with raises, etc. For example, when my husband and I married, we got a policy for $500,000, with a 10% IBR. Every year, the policy goes up by 10% of the original value, or $50,000 each year. The premium also goes up, but only by the amount that it would have been at the age the policy was first taken, which means, now that 6 years have passed, we have an $800,000 policy on my husband, but at the premium it would have been at his age 6 years ago–the new adjusted premium is not based on his current age. It can be a real money-saver, and it’s also automatic.
Nobody likes to talk or think about the tough stuff, but anyone who has witnessed a family go through the unthinkable knows that if you don’t talk, think about, and plan now, you may never have the chance to do so.

I forwarded this to my husband because we were JUST talking about this with your financial advisor. This was his comment back to me, “I wish he had gotten more into why he doesn’t like the whole life insurance. But, I think the advice he gives is right in line with what Mike (our finance guy) suggested. I think he suggested $250K for you and $750K for me. He suggested a term policy for you and for me, a $500K term policy and a $250K whole life insurance policy.” May I ask Barry to elaborate on his thoughts about whole life insurance, pretty please 🙂

The biggest reason I don’t like whole life is because I want insurance to be insurance. I want to pay for insurance and nothing more. Whole Life Insurance is really insurance plus an investment. As such, you pay a lot more for “insurance” because of the “investment” that is tied to it. Without getting into a lot of detail, know that if you’re looking for INSURANCE, term can’t be beat in price and the coverage is no different than whole life, universal life, etc. There’s still money paid at your death. If you’re looking for INVESTMENTS, whole life means you have to tie your investment up with insurance. I’d prefer to keep it simple, cheap and easy. If one day we are independently wealthy and don’t require life insurance any longer, I don’t want to worry about my investments. Similarly, if things get tight and I have to decide whether I pay the life insurance this month or pay into my investments, keeping them separate makes that a lot easier. Hint: if you don’t pay your premium, you don’t have insurance any more. ;0) There are more reasons, but cost and simplicity are the biggest two in my opinion. Go shopping for $750k of life insurance and see the difference in price between term and whole life. If you can afford whole life but qualify for term, buy term and invest the money you save into a good long-term investment. Way down the road when your term insurance is about to expire, you’ll look back and recognize you made a lot more money on that investment.

Thank you thank you for this post! People are quick to insure their car, but not the souce if income or family manager! My husband works for Primerica and we talk with couples all the time who do not cover the stay at home mom. My husband discusses these same issues with them so that they realize how much a mom does at home. I also like the comment about getting some to cover a ‘mourning period.’ that is really good advice!

We have a policy on me that’s worth about 2/3 of the one we carry on my husband. It would be a huge hardship for our family to try to replace me, so the money would definitely help smooth the way a little bit.

I guess “replace” was a bad choice of word. No mom can be replaced. But they’d still have to figure out how to do it without me, and education would be a huge hurdle to get over. We’re dedicated to keeping our kids out of government schools, so most of the money would probably go there. I don’t like to think about it, but I’m glad to know that there would at least be enough money to replace my work as educator. I have no idea how they’d cover the increases in food costs, etc, because I really do save us a fortune just being here!

I agree: insure sahm or dad; and don’t buy those policies on kids. All this used to be taught in high school classes (FACS, Home-Ec)but so many states have decided we don’t need this info. Hah! Everybody needs it whether they work inside or outside their homes. Kudos for bringing it up, and I would add 2 things:
1. Discuss this before having kids (what if Denise knew her hubs thoughts years ago? and what if death occurs at or near time of childbirth?) AND before getting married! Pastors should cover it in pre-marital counseling.
2. If a couple can set aside savings for emergencies, ( a must-have fund)then wouldn’t even need the rider on insuring children. Also, some parents and grandparetns save money for each kid for college; if premature death occurs, those dollars should be used for the burial, then no need to spend other money for burial because you already have some that won’t be used for its original intent.

I have a policy, which I insisted on having and it has a rider for both our children that will roll over into their own policies at 18 (gotta sign it over to them, too!).

When I asked my husband his plans if I were to die, he will ship them off to his parents in MN and try to see them as often as he can. With his trucking schedule and his hobbies that he likes, he’d never see them. I was pretty mad – “so they lose BOTH parents and go live with people they don’t know?” I set up a Will because he ultimately refused to in 2007 (we did find guardians). I asked him to consider to SACRIFICE they way he wants to work, to beg/plead with the owners if that happened to give him an office job where he can see his kids each day. Too often when the mother dies, the father ships the kids to his parents or some other relative to raise while he works. For the last hundred years this is the norm, but previously, the father just married a new woman to be mother. eh, Stepmother, anyone? 😛 Whereas most often the mother keeps her kids, raises them in poverty, and works all night and part of the day so that they keep some type of life they knew. Our “guardian” just got divorced and so I’ve been able to talk my husband into completing a joint trust, wills, etc. FINALLY. If you guys haven’t considered a living trust, please do so. Unless trusts are filed (like in CO) like Wills are in most other states, it’ll be kept private and protect the kids from having court appointed action due to any money given them (like insurance policy payouts) save lots on court costs (lawyers, guardian ad litem, bank fees, court fees).

Barry, you are soooo right. My husband and I took out a life insurance policy on BOTH of us when our children were born. One additional consideration that we made was a “mourning period” for lack of a better word. My husband would most likely choose not to work for a little while if I were to pass away in order to bring stability back to the home. So, we added that additional cost into the policy amount. Since then a good friend of ours from church lost his wife at 42 leaving a 4 year old and a 6 year old. She had a very small policy. But they did not consider that it might take a year or even two before he could comfortably work full time again. He wishes they had taken a larger policy to cover one or two years salary as well.

My husband is retired. If he were to die, his retirement income would continue to come to me. I am 62 and still working, but part time, as I now help care for my grandson two days a week. I stopped carrying life insurance when our kids became independent. But I wonder if I should consider a modest policy. I do have a 401K that will go to my husband. Also we have no mortgage anymore and our biggest monthly bill is now my medical insurance. Given these facts, any suggestions?

Hey Nancy, since the purpose of life insurance is income replacement, it doesn’t seem like it should be necessary to have a policy on either of you as long as you have savings sufficient to be able to handle the funeral expenses and if you are to pass first, if his retirement income is sufficient for him. That being said, if you don’t have this money, I’d be saving it up! At your age, life insurance is going to be fairly expensive and if you truly don’t need it (and it seems you don’t), you’d save more money in the long run by just setting aside a portion of your overall savings to cover funeral expenses when they come (many years down the road, we hope).

The price almost completely depends on your age and health, of course. Check with a few reputable companies like Primerica or Northwestern Mutual, or go to a firm that shops around for you like Zander Insurance (that’s the group Dave Ramsey endorses).

I believe God created you to be the hero of your home. You CAN manage your home instead of it managing you. That’s why I empower women with simple solutions for their homemaking needs – because if it’s not easy, you won’t do it. {Read More…}

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